Surviving Student Debt

Vancouver resident Mark O'Meara knows a great deal more than most ex-students about the pitfalls of the Canada Student Loans Program. He says he'll never forget what it was like receiving calls from collection agencies seeking repayment on his $25,000 student debt. O'Meara, a UBC graduate in counselling psychology, told the Georgia Straight that as difficult as this was, it didn't compare to the frustration of dealing with federal student-loan administrators. He claimed that many didn't even know their own rules.

"They actually denied me forms, referring to a supposed regulation that didn't even exist," he claimed.

O'Meara said that as he delved more deeply into this issue, he began to realize that many other former students were probably encountering similar problems with their Canada student loans. Then things took an abrupt turn after a vision appeared in his sleep.

"I woke up in the middle of the night with floating above my head in red," he recalled. "I really remember my dreams. This one was so obvious; it was just hanging there."

The next day he received a cheque, which he used to start a Web site. Since then, has developed into the country's premier discussion forum for people with student loans, recording more than 130,000 hits. It has also become a flashpoint for criticism of collection agencies, which the federal government contracts to collect student debts.

John LeBlanc, a Halifax-based former collector who now advises debtors, told the Straight that agencies don't want to spend "unnecessary time" educating people about their financial options.

"The recipe for success is to bash and crash for cash," LeBlanc said. "Otherwise you won't make it. Do your target and keep your job."

O'Meara's Web site has a "policy" that people with resources should repay loans and that help should be provided for those who can't. It also demands better service from the administrators of the Canada student loans program. Postings there routinely vilify or ridicule collectors, sometimes alleging that they engage in illegal activity. There are also tips on answering collectors' questions and on filing complaints to Human Resources and Skills Development Canada, which retains collection agencies on commission.

O'Meara and many others have alleged that the company contracted to administer Canada student loans, Edulinx Canada Corp., routinely loses interest-relief applications and other forms. O'Meara said that when this happens, the loan goes back to the government, which turns it over to a collection agency. He said many people have told him that this has occurred even while they're making regular payments.

"It's just like The Bourne Identity," O'Meara claimed. "You wake up and your credit rating is destroyed and your bank account is drained. And there is nothing you can do about it because the administration of the program is so bad."

According to the most recent actuarial report on the Canada student loans program, a "larger than expected amount of defaults occurred in loan year 2002-03 and for the first few months of 2003-04". In 2002-03, 332,000 students borrowed $1.5 billion under the program. The federal government's net cost was $753 million.

OCCASIONALLY, WHEN the collection agencies take excessive liberties, people with student loans challenge them in court. In April 2000, Mark Tran, a University of Toronto commerce graduate, sued Financial Debt Recovery Ltd. after "a steady barrage of rude and abusive calls to the workplace", according to an Ontario court decision.

Justice Anne M. Malloy of the Ontario Superior Court of Justice ruled in Tran's case that there was no justification for the behaviour of the collection agency. "The defendant's employees lied about their own identities, fabricated defamatory stories about the plaintiff, harassed the plaintiff at work, harassed other employees at the plaintiff's office, threatened physical harm to the plaintiff, called him offensive names and generally humiliated him," Malloy wrote in her decision. "Their conduct was not only reprehensible, it was illegal under the licensing statute."

Malloy ruled that the total damage was $40,000--half for defamation and the other half for loss of income and emotional suffering. However, she stated that she could only award Tran $25,000 under the court rules for that type of action. HRSDC still retains Financial Debt Recovery to recover debts on a commission basis.

In a 2001 case in Vancouver small-claims court, Vancouver resident Stephen Toban alleged that another agency on the HRSDC list, Total Credit Recovery (B.C.) Ltd., repeatedly harassed his grandmother for his student debt while he was living in England. Toban also claimed in court documents that the collection agency company called his father, uncle, sister, girlfriend, employer, a prospective employer, and his landlord, improperly disclosing Toban's financial status.

Judge Paul R. Meyers noted that the company's collectors used fictitious names, making it impossible for Toban to track down who was making all the calls. Meyers ruled that the agency's conduct amounted to harassment and awarded Toban the $10,000 maximum in small-claims court.

"If this were in the Supreme Court or if damages were permitted in a higher amount, I would award a total of $20,000, split $10,000 mental stress and $10,000 punitive," Meyers said, according to a transcript of his oral reasons for judgment. "Because this is a limited-jurisdiction court, the total award for Mr. Toban shall be $10,000."

Social Development Canada spokesperson Nicole Burgers sent the Straight an e-mail saying Total Credit Recovery filed an appeal, and the two parties settled out of court. The Straight was unable to reach Toban or the company by deadline. According to HRSDC officials, no private collection agencies have had their contracts revoked for noncompliance with departmental directives. This doesn't surprise LeBlanc, the former debt collector who now provides "financial wellness" advice to people with student loans.

"The directives that the [federal government] issues are very tight," LeBlanc said. "If any collector were to abide by the rules, they wouldn't collect any money."

For example, he said, collectors cannot tell a third party about a person's student debt without the borrower's consent in writing. He also said that collectors are not permitted to say the agency will take the borrower to court, because any lawsuits must be initiated by the federal government. Yet LeBlanc insisted that this frequently occurs, and he advised taping all conversations with debt collectors.

Part of the problem, LeBlanc said, is in how agencies are hired for
student-loan collections. According to the federal government Web site (, nine companies have annual contracts on commission this year to collect fees and charges. LeBlanc claimed that a collection agency competes for contracts each year, based on a government formula that takes several factors into account. He added that an agency prefers if complaints go directly to the company rather than to the federal government.

"It may have a great recovery rate, but it may have a whole crapload of performance complaints," LeBlanc said. "That will affect the bottom line on that performance grid."

CANADA STUDENT LOANS are deemed in default when payments are in arrears for 270 days. According to the program's last annual report, in 2001 ­02, the forecasted overall three-year default rate was 25.83 percent. The rate for people who attended university was 19.08 percent, compared with 30.64 percent for people who went to college and 35.5 percent for former students of private institutions.

The federal student-loan default rate was just 8.85 percent in the United States in 2002, according to the latest U.S. Census Bureau's latest figures. LeBlanc claimed this is because there are superior programs south of the border, as well as more effective regulation of collection agencies.

New Westminster resident Basil Fitze is one of the thousands who've defaulted on loans at private institutions. Fitze, a customer-service clerk, told the Straight that he enrolled in a computer-programming correspondence course in 2001 with CMS Training in Markham, Ontario. He said the tuition was $4,056, which was covered by a Canada student loan that went directly to the school.

"The problem was they sent me a laptop computer that didn't have a CD-ROM drive in it," Fitze alleged. "But they sent me my software on a CD-ROM."

He claimed that he later cashed a registered retirement savings plan to buy a desktop computer with a CD-ROM drive and then discovered that the school's software didn't work. The school sent him new software, but he alleged that the company delayed sending him his second-stage marks. After he filed a complaint, the school sent him a $309 refund, claiming Fitze wouldn't get the full amount because he had cancelled.

Fitze later discovered that CMS Training had been removed from the approved designation list for the B.C. student-aid plan on September 6, 2001, and it was removed from designation through the Ontario program in August 2002.

"I faxed the prime minister because I was pissed," Fitze said, adding that he has no intention of repaying this student loan. "It's not like I was trying to scam anybody. My two other Canada student loans--I pay them on time."

CMS Training owner Raj Nathwani has written to the Ontario government describing Fitze's complaints as "groundless and somewhat confusing", as well as "unsubstantiated and unwarranted". Nathwani also alleged that his company offered free tutorial services for up to six months so he could finish the remainder of the course.

Fitze said he is now in credit counselling, and the collection agency told him that it is conducting an investigation. He also wrote about his experience on www.evil, which is registered to Calgary resident Carla Morton. Like O'Meara's site, it also includes scathing comments about collection agencies and the administration of student loans, particularly by CIBC when it owned Edulinx Canada.

ALLAN PARKER, a Vancouver lawyer with 25 years' experience acting for debtors, told the Straight that he has frequently encountered "the rough edge" of the collections industry. Parker is program manager of the LawLINE, which offers free advice to low-income debtors. He emphasized to the Straight that his comments are personal and not on behalf of the Legal Services Society, which operates the hotline. Parker said that his staff often find an "imbalance" between what the collection agencies want and what the callers feel they're able to pay.

"Basically, the collectors are more aggressive than the debtor would like them to be," Parker said. "Often we get the calls because the...person with the student loan has not been able to negotiate something that they believe is reasonable with the collector."

He said that LawLINE staff tell callers that under the province's new Business Practices and Consumer Protection Act, B.C. residents can take steps to end harassment by collection agencies. Debtors may send a letter to an agency stating that they want all further communications in writing to a designated address. (Straight researcher Stanley Tromp has tried it and reports that it works.)

Manjit Bains, vice-president of the Business Practices and Consumer Protection Authority of British Columbia, told the Straight that if a collection agency persists, B.C. residents may file complaints. Under the new act, collection agencies must also send a "heads up" letter to debtors before making phone calls.

Agencies are also prohibited from discussing a debt with the person's family members, relatives, neighbours, or acquaintances without the debtor's consent. Agencies may only call an employer to confirm the debtor's business title and business address unless otherwise authorized by the debtor. Individuals who violate these sections are liable to a fine of up to $10,000 and imprisonment for up to a year. Agencies may be fined up to $100,000.

"If every debtor in the province conceivably knew that they could go to the business practices authority the moment they were unhappy with a collector, there is simply not the resources," Parker said.

Many people who visit O'Meara's site take issue with the federal government's draconian rules concerning disability. If people become disabled more than seven months after stopping school, they don't qualify for a federal exemption on a Canada student loan--even if the person becomes a quadriplegic, as Vancouver resident Christie Reid discovered.

Last year, the Straight reported that a collection agency contacted Reid about her $16,000 student loan after she lost the use of both arms and legs in a hiking accident. Reid recently told the Straight that CIBC told her she must deal with the federal government, and the federal government has told her that she must deal with CIBC. The situation remains unresolved.

"I don't want other people to go through the same crap," Reid said.

The interest rates on Canada student loans are negotiated at a fixed rate of prime plus five percent or a floating rate of prime plus 2.5 percent. At the same time, there has been an increase in average debt loads. At consolidation (six months after leaving school), the average Canada student loan indebtedness in B.C. in 2002 ­03 was $9,623--a 10-percent increase over the previous year. That doesn't include the debt load for B.C. student loans.

"Personally, I think they should scrap the whole program," O'Meara said. Failing that, he suggested there should be a sharp reduction in interest rates.

DOUG WELBANKS, the province's former director of both debtor assistance and debt collection, told the Straight that 15 to 20 percent of the government's clients had student-loan problems in the 1990s. The B.C. Liberal government shut down the debtors' assistance branch in 2002, and Welbanks said he thinks the situation has probably gotten much worse for people with student loans.

"The universities and colleges are guilty of converting postsecondary education into a business," he said. "The bottom line is profit."

Welbanks recalled helping a single mother in Kelowna in 1997 who wanted to get off welfare. She took out a student loan to attend a hairdressing school but couldn't find work in that field.

The following year, the federal government amended the Bankruptcy and Insolvency Act to prevent Canadians from being discharged from federal and provincial student loans for 10 years after leaving school. As a result, Welbanks said, this woman couldn't get discharged from her student loans even though there was no prospect of repayment and no prospect of employment.

"That's where your collection problem deepens," Welbanks said. "Now the collection agencies had 10 years to go after people. They were actually laughing at people."

The Canadian Federation of Students has launched a legal challenge in Ontario Superior Court, arguing that the 10-year rule violates equality rights under Section 15 of the Canadian Charter of Rights and Freedoms. According to CFS, a decision is expected this month.

O'Meara alleged that the student-loan system has become another form of taxation on poor people. Welbanks noted a certain irony in this situation. He pointed out that student-loan programs were originally designed to give poor people access to postsecondary education.

"After graduation, presumably, they would find a way out of poverty," he said.

Instead, Welbanks suggested that the federal government's bankruptcy legislation and student-loan program is accomplishing the opposite effect: saddling many low-income students with huge debts that keep them in poverty for the rest of their lives.